TaxTMI 
TaxTMI 
2022 (11) TMI 1340
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....assessee had international transaction reference under section 92CA was made. The Deputy Commissioner of Income Tax (Transfer Pricing)-2(2)(1), Bangalore ('TPO') after taking into consideration the submissions of the Company, concluded the proceedings under section 92CA(3) and passed the transfer pricing order on 30.1.2015 by making the following adjustments:- a) Interest on loan provided to Sasken Inc. amounting to Rs. 1,35,24,952. b) Corporate Guarantee provided to subsidiary amounting to Rs. 97,11,364. 2. The AO passed the draft assessment order was making the following adjustments to total income in addition to the TP adjustment. a) Excess Deduction u/s 10A/10AA: Rs.29,59,03,223/- b) Disallowance u/s 14A: Rs.1,04,91,588/- 3. Aggrieved by the draft assessment order the assessee filed the objections with the Hon'ble DRP. The DRP after considering the submissions of the rejected the contentions of the assessee and affirmed the orders of the AO and TPO. However, in respect of the ground raised by the assessee with respect to exclusion of foreign currency expenses from export turnover under section 10A, the DRP directed the AO to follow the ....
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.... order dated 14.1.2020. c) Disallowance under section 14A: This issue was a subject matter of ITAT MP order 28.6.2019 and the subsequent ITAT order dated 14.1.2020 by which it was remanded back to the AO with a direction to exclude investments which do not yield exempt income in light of the decision of the Special Bench of the Delhi Tribunal in ACIT vs. Vireet Investments (P) Ltd (2017) 82 Taxmann.com 415(SB). d) Reduction of Royalty from 10A/AA profits: This issue was a subject matter of ITAT MP order 28.6.2019 and the subsequent ITAT order dated 14.1.2020 by which it was remanded back to the AO with a direction to verify the claim of the Company for the year under consideration in light of the ratio laid down by Hon'ble Karnataka High Court in case of CIT vs. Wipro Ltd in ITA Nos. 503 and 507 of 2002. e) Reduction of expenses incurred in foreign currency from export turnover: This issue was a subject matter of ITAT MP order 28.6.2019 and the subsequent ITAT order dated 14.1.2020. The ITAT noted that the DRP while considering the issue held that Tribunal in the Company's own case in AY 2004-05, 2006-07 and AY 2008-09 held that the foreign currency expen....
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....the DRP directed the AO to adopt the rate at 0.92% as determined by the TPO in the first round of proceedings. The AO passed the final assessment order u/s 143(3) r.w.s. 144C(13) of the Act arriving at an assessed income of Rs.51,30,15,092/- in line with directions of the DRP in which the following additions were made:- a) Excess Deduction u/s 10A/10AA: Rs.22,25,27,655/- b) Disallowance u/s 14A: Rs.62,12,501/- c) Transfer Pricing Adjustment: Rs.97,11,364/- d) Disallowance of Foreign Tax Credit: Rs. 3,72,69,000 8. Aggrieved by the above final order of assessment in the second round of assessment proceedings, the assessee is in appeal before the Tribunal. The assessee raised grounds pertaining to the following issues a) Ground No. 1 (Ground 1.1) - General ground b) Ground No.2 (Ground 2.1 to 2.2) - Validity of draft assessment order c) Ground No.3 (Ground 3.1 to 3.3) - TP adjustment on Corporate Guarantee d) Ground No.4 (Ground 4.1 to 4.5) - Exclusion of royalty income from profits eligible for deduction u/s.10A and 10AA) e) Ground no.5 (Ground 5.1 to 5.4) - Reduction of expenses incurred in foreign c....
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..... ACIT v Tejas Networks Ltd. [2022] 139 Taxmann.com 430 (Bangalore Trib.) 14. The ld AR with respect to the amount of corporate guarantee on which the interest rate is to be applied submitted that the adjustment has been made on the entire amount of corporate guarantee whereas it should be made only in respect of loan outstanding payable to Nordea Bank as on 31st March 2011, as the risk of default, if any, will be limited to the amount actually payable by the overseas subsidiary to Nordea Bank. The ld AR drew our attention to the fact that for the assessment year 2012-13, in Assessee's own case the TPO vide order u/s 92CA rws 154 dated 22.2.2016 [Page 591, 592 of the paper book] had made the adjustment at 0.92% on the outstanding balance of the loan amount. The ld AR therefore prayed that the revenue cannot take a different stand for the year under consideration. 15. The ld DR supported the orders of the lower authorities and argued that 0.92% as directed by the DRP is a very reasonable rate. The ld DR further submitted that the rate of interest should be levied on the average of opening and closing balance of the corporate guarantee and not only on the closing balance. 16....
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....ng that the royalty income belonged to STPI/SEZ units [Page 632 to 703 of the paper book]. 18. The AO did not accept the claim of the assessee for the reason that fresh position of law had emerged considering the judgement of the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd vs. CIT [2021] 125 taxmann.com 42 (SC). Relying on the said decision, the AO held that ownership of software for which royalty had been received, vested with the corporate entity and not with the specific SEZ/STPI undertaking. For this reason, the royalty income was reduced from profits while computing deduction under section 10A/10AA. 19. The DRP concurred with the views of the AO by stating that the decision of the Karnataka High Court in Wipro Ltd (supra) is distinguishable on facts as it pertains to interpretation of profits of business under section 80HHC and not under sections 10A/10AA 20. The ld AR made a detailed submission as extracted below - (a) Under section 10A(1)/10AA(1), profits and gains derived from the export of, inter alia, computer software is eligible for deduction under section 10A. Subsection (1) of section 10A/10AA begins with the expression 'subje....
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....ing the royalty income on the basis of turnover of all units even though the royalty income was only pertaining to Bangalore - SEZ, Pune - STPI and Bangalore - STPI as mentioned above at para 29 (supra). The Appellant submits that royalty income should be considered as profits of Bangalore - SEZ, Pune - STPI and Bangalore - STPI as mentioned above table (supra) and deduction under section 10A/10AA should be allowed as claimed in the return of income 21. The ld AR also brought to our attention that though the decision of the Hon'ble High Court in the case of Wipro (supra) was held in the context of section 80HHC, there are subsequent decisions rendered in the context of 10A in the case of CIT v WIPRO Ltd ITA No 507 of 2002 (decision dated 1.9.2010) where it is held that special import license premium income and other miscellaneous income should be considered as income derived from the industrial undertaking eligible for exemption under section 10A of the Act. The ld AR also submitted that following these two decisions, the Karnataka High Court in CIT v Wipro Ltd ITA No. 3204 of 2005 decision dated 28.2.2012, at page 5 to 7 of its decision, [Page 806 to 808 of case laws filed on 3....
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....cs (P) Ltd., reported in (2014) 46 taxmann.com 167 (Karnataka) was pleased to dismiss the appeal. Hence, the substantial questions of law raised herein, being identical, the appeal deserves to be dismissed answering the substantial questions of law raised, against the revenue and in favour of the assessee. 3. Learned counsel for the revenue made an endeavor to distinguish the judgments of the co-ordinate bench decision in the very same assessee's case referred to supra, referring to the following judgments:- 1) Commissioner of Income-tax US. Meghalaya Steels Ltd., [(2016) 67 taxmann.com 158 (SC)]; 2) Commissioner of Income-tax us. Sasken Communication Technologies Ltd., [(2014) SO taxmann.com 134 (Karnataka)];" 3) Commissioner of Income-tax vs. Yokogawa India Ltd., [(2017) 77 taxmann.com 41 (SC)]; 4) Commissioner of Income-tax, Central Circle vs. Motorola India Electronics (P.) Ltd., [(2014) 46 taxmann.com 167 (Karnataka)]; 5) Commissioner of Income-tax - VII, New Delhi vs. Punjab Stainless Steel Industries [(2014) 46 taxmann.com 68 (SC)]; 6) Commissioner of Income-tax vs. Hewlett Packard Global Soft Ltd., [(2017) 8....
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....o exclusion of expenses incurred in foreign currency while computing deduction under section 10A 24. During the course of assessment the AO excluded the expenses incurred in foreign currency from the export turnover of the 10A units to the tune of Rs. 7329.94 lakhs. The amount is arrived at based on the break-up of the expenses incurred in foreign currency for Rs.7550.06 lakhs taken from notes to accounts forming part of the audited financial statements for the year under consideration as reduced by an amount of Rs. 2,20,66,228/- already reduced by the assessee from the export turnover of the 10AA unit in the return of income in view of the definition of 'export turnover' as contained in clause (i) of explanation 1 to section 10AA. 25. The ld AR submitted that the ITAT in Assessee's own case for the AY 2004-05, 2006-07 and 2008-09 vide order dated 04.03.2015 held that expenses incurred in foreign currency should not be reduced from export turnover while computing deduction under section 10A for the reason that the Appellant is engaged in development and export of computer software and not into technical services. However while passing the OGE orders for these years, the AO di....
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....rance attributable to the delivery of the articles or things outside India or expenses, if any, incurred in foreign exchange in rendering of services (including computer software) outside India;"(emphasis supplied) 28. From the plain reading of the above two definitions under section 10AA and 10A, it is clear that the definition of export turnover under section 10AA is different from the definition of export turnover under section 10A. Section 10A does not warrant exclusion of expenses incurred in foreign currency attributable to rendering of services in connection with development of computer software. However, section 10AA specifically warrants exclusion of expenses incurred in foreign currency attributable to rendering of services in connection with computer software. Similar prescription is absent in section 10A. The exclusion from 'Export turnover' under section 10A is of expenses incurred in foreign currency in providing technical services outside India. "Technical services" would mean making available specialized knowledge or information to a third person. The recipient of such knowledge or information is then enabled to apply and use such knowledge and information for th....
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.... out of India of computer software or its transmission from India to a place outside India by any means. The law makes a distinction between technical services rendered in connection with export of computer software and export of technical services for the purpose of development or production of computer software outside India. If the technical services rendered by the assessee's Engineers is in connection with the export of computer software for the purpose of testing, installation and monitoring of software such a turnover do not fall within clause (ii) of sub-section (1) of section 80HHE of the Act. Such a turnover falls within sub-clause (i) of sub-section (1) of section 80HHE of the Act, that is export out of India of computer software or its transmission from India to a place outside India by any means. The expenditure incurred in the form of foreign exchange for such services cannot be excluded in computing the export turnover as it forms part of the export turnover. In the instant case as is clear from the order of the Assessing Authority, he proceeds on the assumption that the assessee is a company engaged in rendering technical services outside India in connection wit....
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....currency should not be reduced from export turnover while computing deduction under section 10A. 32. We notice that the assessee has already reduced a sum of Rs. Rs. 2,20,66,228 towards expenses incurred in foreign currency for the purpose of deduction u/s.10AA. However the AO while reducing the expenses incurred in foreign currency has done it for the SEZ units also. In view of the fact that the expenses incurred in foreign currency being already reduced, in our considered view reducing the expenses based on the breakup in notes to accounts would amount to double reduction and not warranted. It is further noticed that the AO has made the similar reduction from the total turnover also while computing the deduction u/s.10A and 10AA (Refer para 4.3.2 page 13 of AO's final order). We therefore direct the AO to delete the deduction of Rs.7329.94 lakhs made in the export turnover and total turnover. It is ordered accordingly. Grounds No. 6.1 to 6.3 - Ground with respect to addition of withholding taxes and income tax amounting to Rs. 3,27,69,000 33. In the computation of total income for the year under consideration, the assessee added back of withholding tax and income tax of ....